ACT breaks tax laws

...by helping the littlest AIDS groups with cash

By Ann SilversidesNov 17, 1999, 7:00 PM EST

Several well-known AIDS groups are scrambling for funds as a result of Revenue Canada’s first-ever audit of the AIDS Committee Of Toronto.

ACT, a registered charity, ran afoul of the taxman – who discovered the organization was funnelling money from tax deductible donations to some smaller AIDS groups that are not themselves registered charities.

But a spokesperson for AIDS Action Now (AAN) suggests the hoops may be too much for them. And Gordon Floyd, vice-president of public affairs for the Canadian Centre Of Philanthropy, argues that what’s needed is a complete overhaul of the way charities are treated in Canada.

ACT was one of at least three local AIDS registered charities recently subjected to a Revenue Canada audit. Two others – Fife House and the Ontario AIDS Network – passed their audits without incident.

ACT’s mistake was to allocate almost one-third of the $243,030 available for distribution from its Community Partners Fund to groups that don’t themselves have charitable status under the Income Tax Act.

A total of almost $80,000 in 1999-2000 grants to 10 different organizations was listed as “pending” in a recent ACT report, because the would-be recipients don’t have charitable status. (The CPF consists of money from ACT’s three major fundraising events, the AIDS Walk, Dancers For Life and Fashion Cares; 20 per cent of the total is given to other organizations.)

Some of those “pending” groups, like the HIV And AIDS Legal Clinic (Ontario), have applied for charitable status, but Revenue Canada has not yet ruled on their applications. (The waiting period ranges from three months to two-and-a-half years, Floyd says.)

One group on the list, Voices Of Positive Women, already has charitable status. And at least one other group, AAN, would never qualify for charitable status under current rules. Charities are supposed to devote no more than 10 percent of their resources to advocacy; AAN exists primarily to engage in advocacy and political activity.

To get around the restrictions, the non-charities can ask another charity with a registered number to sponsor it, so the money can flow through the sponsoring charity. This strategy has allowed ACT, through the registered 519 Church Street Community Centre, to flow money to the AIDS Memorial and the AIDS Candlelight Vigil.

Still, if money is to flow from charities to non-charities, “Revenue Canada says you have to exercise control and supervision…. The trouble is the expectations are not clear and sometimes they are unreasonable,” Floyd says. “We say that [for flow-through arrangements]. We need clear guidance from Revenue Canada.”

When it comes to AAN, Roy says the activist organization should be able to, through a sponsoring organization, receive funding for its treatment information services.

But AAN’s Matthew Perry suggests members are not holding their breath.

“If we have to be linked to another agency and subject to their approval,” he says, “this could compromise our independence.”

So important is its independence that AAN does not accept money from governments or from the pharmaceutical industry – the key funders of many other AIDS organizations. To date, AAN has been funded primarily by bequests and the fruits of a private fundraising drive a couple of years ago (contributors do not receive tax deductions when they give).

Still, the loss of CPF funding would be a blow to AAN, and could leave the organization homeless. Meanwhile, Floyd says he disagrees with current rules and believes AAN should be able to become a registered charity.

“Why shouldn’t an organization like AAN that advocates on behalf of people with HIV be eligible for tax receipts? Aren’t they contributing to the public good?”

In fact, a complete rethinking of restrictions placed on the advocacy and political activity of charities is recommended in a recent report by a joint committee of senior federal officials and voluntary sector leaders. Instead of restricting advocacy-related activities to a percentage of a charity’s resources (as now happens), the report authors suggest the Income Tax Act should permit advocacy in particular instances.

For example, charities should be able to engage in advocacy and certain “political activities” under a set of conditions, such as that the activities relate to the charity’s objectives, be non-partisan, and not involve in illegal activities.

In a recent Federal Court Of Appeal case, a judge ruled that comment on any social issue is a political activity, Floyd says, hence subject to the 10 percent limit. In his view, it’s unacceptable for the court “to limit charities’ abilities to comment on social issues in this manner.”

As government withdraws from more and more areas, and responsibility is shifted to the voluntary sector, that sector needs to be strengthened, he says. “Part of doing that is giving the sector a larger role in policy life, where it can argue from a values base. This will be a counter balance to market-oriented forces.”